Why Is Watson IoT Platform Important For IBM?

by Trefis Team
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International Business Machines (NYSE:IBM) launched Watson solutions for enterprise in 2014. Even though close to 63% of its value stems from software (middleware and operating system) and technology services business, the fast changing delivery mechanism for software (Cloud Software as a Service) and its deployment (Infrastructure as a Service) has affected top line growth in more than one way.  While IBM’s middleware is losing its sheen as application development moves to cloud, IaaS across its technology services is gaining momentum. However, IBM has carefully maneuvered itself into the next wave of tech growth that relies heavily on big data analytics with its cognitive computing system, Watson. Recently, IBM has introduced its first global consulting practice for the internet of things (IoT) on Watson. [1] In this note, we explore Watson’s IoT solution.

See our full analysis on IBM

Why Watson Is Important For IBM?

Watson is a technology platform that uses natural language processing and machine learning to derive analytic conclusions from enormous sets of unstructured data. Using these techniques from the academic discipline of Artificial Intelligence, Watson is a highly advanced software system designed to run on a range of IBM’s high performance computing systems.

In an article published earlier [2] , Trefis estimated that the total addressable market (TAM) for Watson Solutions was over $147 billion. Even with conservative estimates, Watson solutions can add over $10 billion to IBM’s topline by 2022.

However, recently the company launched an array of new services, industry offerings and capabilities for enterprise clients, startups and developers to drive digital transformation in the Internet of Things (IoT) domain through Watson  IoT platform.

How Watson Can Benefit From Push To IoT?

Although IoT is still at a nascent stage, it is expanding fast and is considered to be the next big growth driver across multiple industries such as semiconductors, Business intelligence, Data analytics. McKinsey Global Institute estimates that the impact of IoT on the global economy can be as high as $6.2 trillion by 2025. The installed base for IoT devices is estimated to grow from around 10 billion connected devices today to as many as 30 billion devices (50 billion as per some estimates) by 2020.

To ensure that small and medium size businesses can leverage the growing popularity IoT, IBM has launched Watson’s IoT consulting practice that houses 1,500 experts across IBM Watson IoT headquarters in Munich, Germany and in eight other IBM IoT centers across Asia. IBM’s clients can integrate Watson IoT’s APIs (Application programming interface provides access to subroutine/functions to build software applications) and technologies, which includes cognitive, analytics, mobile, security and cloud capabilities,  to seamlessly develop and integrate solutions without the hassle of dealing with multiple vendors.

For startups, IBM is offering Watson IoT for free so that these businesses can test out and explore new IoT innovations. It is also offering open and free access to the IBM Watson IoT Platform development capabilities.

Watson IoT platform is available for various industries including automotive, electronics, industrial products, insurance, retail, telecommunications, transportation and buildings. Current offerings on the IBM Watson IoT Platform include IBM Watson IoT for AutomotiveIBM Watson IoT for Electronics and IBM Watson IoT for Insurance. However, IBM announced new offerings through IBM Watson IoT for Manufacturing and Asset Health Insight that clients address industry-specific IoT adoption challenges and opportunities. Manufacturing is one of the largest opportunities in IoT, with McKinsey estimating IoT applications in factory settings to have the potential to create value of $1.2 trillion to $3.7 trillion per year in 2025.

Considering the size of IoT, IBM can generate significant revenue from its Watson IoT platform. However, at this point it is difficult for Trefis to ascertain the size of this vertical. Trefis continues to follow this vertical and will update its readers when more information and numbers for this vertical are available

At present, we have a $144 Trefis price estimate for IBM, which is about 12% lower than the current market price.

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Notes:
  1. IBM Named an Internet of Things Software Platform Leader, Launches Global Watson IoT Consulting Solutions, November 21 2016 []
  2. How Much Can Watson Add To IBM’s GBS Revenue And EBITDA In 2022? []
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